A couple of weeks ago Tommy Gibbs published an article titled “Does it Still Make Sense?” In case you haven’ read it, I have attached a copy to this message. Gibbs talked briefly about the changes we’ve been experiencing in the retail automotive business, but he spoke mostly about what hasn’t changed…compensation plans…and whether they need to change from a primary emphasis on gross profit to something else. As a subject matter expert (SME) in dealership compensation planning, implementation and management, I completely agree with everything that Tommy said in his commentary. The purpose of my article today is to share some ideas about the various metrics you may wish to include if you are considering minimizing or eliminating gross profit as your primary compensation driver in the vehicle sales department. Any of the following elements could be utilized in dealerships that price their merchandise at an equilibrium value, or at (or close to) the “average market price”, and that are focused on maximizing inventory turn:

For combination new and used vehicle sales personnel

1. A significant salary element to support a minimum production level
2. Graduated, retroactive per vehicle bonus levels, to incentivize volume increases
3. Transactional Price-to-Sale Gap to minimize discounting
4. Percent of vehicles delivered that qualify as “Salesperson-Originated Business”
5. Customer Satisfaction/Owner Retention
6. Average sold vehicle-days-in-stock to minimize over-age vehicles

For managers and specialists who focus on used vehicle inventory management

1. Average Cost-to-Market of retail inventory
2. Percent of inventory less than 30 days in age
3. Percent of inventory greater than 60 days in age
4. Average Days-to-Market (both including and excluding reconditioning time)
5. Number of vehicles retailed during the month
6. Percentage of CPO vehicles retailed during the month
7. Monthly Departmental “all-in” gross
8. Departmental “all-in” gross as a percent of average inventory (ROI)
9. Average vehicle cost of sale

For GSMs and other sales management personnel

1. Number of vehicles retailed during the month
2. Transactional Price-to-Sale Gap to minimize discounting
3. Monthly Departmental “all-in” gross
4. Appointment “Shows” as a percent of total face-to-face OTDBs
5. Salesperson productivity
6. Number of vehicle salespersons on board at the end of the month, as a percent of the objective established by the General Manager at the beginning of the month.
7. New and/or used vehicle market penetration

These are obviously a lot of choices, and you certainly don’t want to use them all. Additionally, there may be other elements that are specifically important to you or your store. In each of the above three position groups, two elements (or groups of two elements) can be used as the “X” and “Y” axis to develop a matrix that determines flat unit bonuses or a scaled percentage of defined gross profit production.

If you have questions about compensation planning, please check out my website (garryhouse.com), email me, or give me a call. I’ll be happy to spend some time helping you address the compensation challenges at your individual dealership or dealer group. Why not get 2016 started off on the right foot?

Wishing you a Great Finish to 2015!

Garry House

(561) 339-0043

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